Which of the Following Represents the Most Appropriate Description of Vertical

question 4

Multiple Choice

Which of the following represents the most appropriate description of vertical analysis?

• A) An analyst prepares pro forma financial statements for the next five years.
• B) An analyst compares financial ratios of a company over the last five years.
• C) An analyst compares financial ratios for the current year for two companies.
• D) An analyst prepares ratios to determine what sales are required to earn a profit.
• E) An analyst develops ratios to determine how much the company needs to borrow.

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Definitions:

Provisions

Liabilities of uncertain timing or amount, set aside in a company’s financial statements to cover anticipated losses or obligations.

Events

Occurrences or actions that can have an impact on the operational, financial, or legal standing of an organization.

Capital Balances

The amount of funds contributed by owners or the net assets available in a business after liabilities have been subtracted.

Net Income

The amount of earnings after subtracting all costs and expenses from revenue, including taxes and other deductions. Representing a company's profit over a specified period.